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Dominica - Economy

In the Commonwealth of Dominica, disasters caused by natural hazards carry critical policy implications with reference to their inherent vulnerability, risk and uncertainty which affect the Country's social and economic development. This continues to remain a major concern for the public, private, productive and social sectors, and a thus crucial consideration of which the Government has to remain ever conscious.

Since tropical storm Erika in August 2015, government efforts continued to focus on infrastructure rehabilitation and social relief, while addressing fiscal sustainability. Significant effort and resources were allocated to the reconstruction of public infrastructure and support to the affected population, while the first-generation of fiscal measures committed in the Rapid Credit Facility disbursement, and some additional measures, have been passed.

Economic activity in 2016 remained weak as capacity constraints and unfavorable weather conditions slowed public investment more than anticipated. Growth is projected to accelerate to above 3 percent in 2017-18 on the back of a pickup in public investment and several large-scale projects, and to stabilize at a potential rate of 1.5 percent over the medium term. The external current account deficit is projected to widen due to the increase in imports of goods and services during the execution of reconstruction investment and the large investment projects. In the medium term, the external balance is projected to gradually improve as agriculture, tourism, and manufacturing recover, and geothermal electricity generation reduces oil imports.

Despite high Citizenship-By-Investment (CBI) revenues, the fiscal outlook has deteriorated largely due to lower projected grant revenues; a downward revision in the projected yields of the fiscal consolidation measures; the increase in social transfers; and the reduction of the corporate income tax rate in January 2017. As a result, the use of government deposits to cover financing needs would be necessary to reach the regional debt target of 60 percent of GDP by 2030 without increasing the fiscal consolidation effort above the commitments in the RCF disbursement.

There are two small airports on the island: the main one is Melville Hall Airport (DOM), about one hour away from Portsmouth; the second one is Canefield (DCF) which is about fifteen minutes’ travel from Roseau. Dominica has six official entry points. Woodbridge Bay is the main Seaport and the headquarters of the Customs and Excise Division. Other Seaports include Portsmouth, Roseau, and Anse-de-Mai. Portsmouth and Ansede-Mai are located in the northern region of the island, and Roseau is in the south. There is no major highway on the island. Before the road was built between Portsmouth and Roseau, people had to take boats which took several hours from one way to the other. Now, it takes about one hour to drive from Portsmouth to Roseau. Minibus services form the major public transport system

Agriculture is Dominica's mainstay and bananas in particular, but less than a third of the island is under cultivation due to the mountainous terrain. However, the sector is in decline, with its proportion of GDP falling from 25 percent in 1990 to 18 percent in 2005. In attempts to boost the economy Dominica is increasingly looking to niche markets in eco-agriculture and eco-tourism. There is also a small offshore financial sector, with an estimated 9000 international businesses. Weak export prices and the gradual phasing out of preferential access to the EU market have affected the banana industry, which has started to decline; along with the downturn in global tourism since 2001 this has caused the economy to struggle in recent years. Unemployment remained high at 23.1 percent.

Many consider Dominica's economic situation the most challenging of all the Eastern Caribbean states. While the economy has grown faster in more recent years, growth over the last decade was still under 1%. The country nearly had a financial crisis in 2003 and 2004. Growth in 2006 was attributed to gains in tourism, construction, offshore and other services, and some sub-sectors of the banana industry. The International Monetary Fund (IMF) recently praised the Government of Dominica for its successful macroeconomic reforms. The IMF also pointed out remaining challenges, including further reductions in public debt, increased financial sector regulation, and market diversification.

Bananas and other agriculture dominate Dominica's economy, and nearly one-third of the labor force works in agriculture. This sector, however, is highly vulnerable to weather conditions and to external events affecting commodity prices. In 2007, Hurricane Dean caused significant damage to the agricultural sector as well as the country's infrastructure, especially roads. In response to reduced European Union (EU) banana trade preferences, the government has diversified the agricultural sector by introducing coffee, patchouli, aloe vera, cut flowers, and exotic fruits such as mangoes, guavas, and papayas. Dominica has had some success in increasing its manufactured exports, primarily soap.

Dominica is mostly volcanic and has few beaches; therefore, tourism has developed more slowly than on neighboring islands. Nevertheless, Dominica's high, rugged mountains, rainforests, freshwater lakes, hot springs, waterfalls, and diving spots make it an attractive eco-tourism destination. Cruise ship stopovers have increased following the development of modern docking and waterfront facilities in the capital.

Dominica's currency is the Eastern Caribbean Dollar (EC$), a regional currency shared among members of the Eastern Caribbean Currency Union (ECCU). The Eastern Caribbean Central Bank (ECCB) issues the EC$, manages monetary policy, and regulates and supervises commercial banking activities in its member countries. The ECCB has kept the EC$ pegged at EC$2.7=U.S. $1.

Dominica is a beneficiary of the U.S. Caribbean Basin Initiative that grants duty-free entry into the United States for many goods. Dominica also belongs to the predominantly English-speaking Caribbean Community and Common Market (CARICOM), the CARICOM Single Market and Economy (CSME), and the Organization of Eastern Caribbean States (OECS).

The highest incidence of poverty (49.8%) was in St. David among the Kalinago or Carib peoples, who reside on the east of the island. However, this was a steep reduction from the 2003 poverty level of 70% in this population, owing to government interventions through targeted public expenditure. Other parishes with poverty rates higher than the national average were St. Joseph (47.2%), St. Paul (32.6%), St. Patrick (42.7%), St. David (40.4%), and St. Andrew (38.1%). These parishes comprise the entire eastern section of the island and are all banana-producing areas.